An FHA-to-Conventional Refinance May Allow You to Ditch MIP

While refinance applications seem to be taking a backseat to purchase applications, there are still some good reasons to refinance your mortgage, even if rates aren’t currently at their best.

First off, let me preface this with the fact that mortgage rates are still spectacular. Yes, the 30-year fixed used to be in the mid-3% range, but a rate of around 4% was relatively unheard of until recently (and is still available today).

Unfortunately, the recent increase in rates has dented refinance applications as the pool of eligible borrowers begins to dry up.

Today, the Mortgage Bankers Association noted that refis slid another 4% in the latest week, pushing the refi share of total mortgage activity down to just 42.6% from 44% a week earlier.

Most industry participants saw this coming, which explains the recent trend of mortgage companies cozying up with real estate agents. Hello Motto Mortgage and Redfin Mortgage, to name just a couple.

But there are still opportunities for both homeowners and mortgage lenders to pick up the refi slack.

Refinancing Out of FHA and Into Conventional


One such opportunity is refinancing an FHA loan into a conventional loan (such as a Fannie Mae or Freddie Mac loan), the main benefit being the removal of the mortgage insurance that must be paid on the former.

Thanks (or not thanks) to the FHA’s stringent mortgage insurance rules, the annual mortgage insurance premium (MIP) must be paid monthly regardless of whether the loan balance falls below 80% loan-to-value (LTV) unless the loan is a 15-year fixed or came with a 10%+ down payment. Or if it’s an older FHA loan.

Most FHA loans are 30-year fixed mortgages with minimal down payments, meaning MIP often stays in-force for all 30 years unless you refinance out of the FHA.

This adds to an otherwise low monthly mortgage payment, making even a great mortgage rate a little less attractive.

Many folks took out FHA loans several years ago to take advantage of the low 3.5% down payment requirement, and because home prices have increased so much since then, some of these borrowers may have the necessary equity to refinance into a conventional loan at 80% LTV or less.

Doing so will allow them to ditch the MIP and avoid PMI on the new conventional loan, which could equate to substantial savings.


Let’s take a look at an example:

Sales price: $300,000
Down payment: $10,500 (3.5%)
Loan amount: $294,566.25 (includes upfront MIP of $5,066.25)
FHA monthly MIP: $205.06

Instead of subjecting yourself to ~$200 in monthly mortgage insurance premiums, you might be able to refinance to a conventional loan at 80% LTV or less and rid yourself of that burden.

Tip: Note that the Upfront Mortgage Insurance Premium (UFMIP) is non-refundable if you refinance out of the FHA to a conventional loan. It may be refundable if you refinance to a new FHA-insured mortgage.

Two Things Need to Happen for the FHA-to-Conventional Refinance to Make Sense

Not just anyone can take advantage of this type of refinance. Only those who have gained enough equity and who can obtain a comparable (or better) mortgage rate will win here.

Using our example, the home must now be worth X amount to get that LTV down to where it needs to be. I say X because it depends how long you’ve had the loan.

A combination of home price increases and the natural amortization of the loan will tell you what the value needs to be.

The loan balance above would drop to $277,000 in just three years, requiring a house value of $346,250 to get the job done.

Fortunately, home prices have surged in the past several years, so for many lucky borrowers the appreciation alone can push a relatively young loan to the magical 80% LTV mark upon refinancing.

Assuming you’re good to go there, you’ll need to consider the mortgage rate. That is, your former mortgage rate and the refinance mortgage rate.

If you previously had a rate of 3.75% on a 30-year fixed, and the best available rate today is 4.125%, you have to take into account that .375% bump in rate.

The good news is that it shouldn’t affect the mortgage payment by too much.

The old principal and mortgage payment was $1,322.73 plus $205.06 with MIP, making it $1,527.80 out the door (don’t forget taxes and insurance too!).

If the rate were 4.125% instead, the monthly P&I payment would be (based on a slightly lower outstanding balance of $277,000) $1,342.48.

Yes, it’s a bit higher than the old P&I payment, by around $20, but you no longer have to pay the $200 in MIP. That’s a significant amount of monthly savings.

In reality, you might actually do even better if you started out with a higher mortgage rate thanks to a low credit score and/or high LTV, and have since improved upon those things.

250,000 Homeowners Expected to Refinance from FHA to Conventional This Year

CoreLogic recently noted that thanks to the FHA policy change of requiring mortgage insurance for life, FHA to conventional refinances have soared.

Last year, such refis accounted for about 8% of all refinance transactions, with about 20,000 loans originated per month.

In 2010, that rate was about 4,000 FHA-to-conventional refis per month, or just one percent of refinance transactions.

Since 2013, when the FHA’s mortgage insurance policy changed, about 2.9 million borrowers have taken out FHA loans. CoreLogic expects another 250,000 of these borrowers to go conventional in 2017, thanks in part to another 5% rise in home prices.

If you’re currently in an FHA loan, it might be time to consider a conventional loan instead if you stand to save a decent chunk of money each month.

Just be sure to take note of how long your FHA mortgage insurance will actually be in-force. Some borrowers with older FHA loans, 15-year fixed mortgages, or those who originally made large down payments might have more favorable insurance requirements.

(photo: Phil Leitch)

source: thetruthaboutmortgage.com

Refinancing Redux: What Happens the Second Time Around?

Given persistent low-interest rates, some homeowners are asking if it’s worth it to refinance a second time before rates creep back up. Counting all types of refinances, Freddie Mac, the government-sponsored mortgage outfit, says the average loan refinanced in the first quarter of 2015 was about 5.6 years old, and homeowners cashed out a total of $7.6 billion.

Is it really advantageous to go through all that paperwork just to save a little bit each month? Here are five things to consider before any “redo-refinancing.”

1. Assess Your Penalty

Unlike the first time you refinanced, dipping back into the pool can come with special penalties. While you likely won’t have a no prepayment clause, the industry isn’t really set up for back-to-back refinancing. If you refinanced within the past 60 to 90 days, double check for any red flags. For example, an FHA Streamline refinance requires 60 days with the previous loan before you can refinance again.

2. Calculate Your Potential Savings

With any refinancing, it’s important to have a crystal-clear view of what you will save overall, not just in monthly payments. The general rule of thumb used to be that you refinanced when current interest rates fell two points lower than your loan. Today people are refinancing for less, so you really need to read the fine print. Some homeowners also refinance for a higher monthly note so they can pay off their loans faster.

3. Understand All Costs and Fees

You can’t get a decent picture of refinancing — once, twice or beyond — unless you understand every single cost and fee, like mortgage-recording taxes. Refinancing can reduce your principal owed, but it can also maintain the same loan amount. If you plan on moving any time soon, this is also a key consideration. Chances are you won’t recoup the costs unless you plan on sticking around.

4. Gather Documents

No matter how many times you choose to refinance, you still have to have all the paperwork ready to go. Required documents usually include driver’s license, pay stubs and tax returns. Unique situations, such as self-employment, may prompt a need for additional paperwork.

source: totalmortgage.com

How to Save Money on Your Mortgage Even If You Can’t Refinance

One of the simplest ways to save money on your mortgage is by lowering your interest rate.

This is generally accomplished via a rate and term refinance, where the loan amount stays the same, but the interest rate and loan term are changed.

For example, if you’re currently stuck with a 6% interest rate on your 30-year fixed mortgage, refinancing to a rate closer to 4% will save you some dough each month.

Not only will it reduce your monthly payment, making life more affordable, but it will also result in less interest paid throughout the life of the loan.


Sounds like a win-win, but what if you’re unable to refinance for whatever reason?  Ben Bernanke, I’m looking in your direction…


 You Can Still Save Money


While you won’t be able to lower your monthly payment without refinancing, you can still save a ton of money on your mortgage another way.

Simply making extra payments, biweekly payments, rounding up payments, or implementing a variety of other methods, you can reduce the total interest you’ll pay on your mortgage without a refinance.

Sure, a refinance combined with extra monthly payments would save you even more money, but if you don’t have that option, this is the next best thing.

Imagine you took out a $100,000 mortgage five years ago and got a rate of 6% on a 30-year fixed.

You inquire about a refinance but after some shopping around determine you’re ineligible because your credit score isn’t up to snuff.

Instead of simply giving up, you can make larger payments each month and shave years off your mortgage (and pay a lot less interest).

If you paid an extra $100 monthly after making the standard payment for the first five years of the loan, you’d still save more than $26,000 and shorten the term to just over 23 years.

If you paid an extra $200 per month (after five years), you’d save more than $40,000 in interest and turn your 30-year mortgage into a 20-year loan.

The beauty of the non-refinance route is that you also don’t reset the clock on your mortgage. In other words, you don’t extend the term with a fresh loan. In fact, you do the complete opposite.


 But You Need Money…


There’s one huge caveat to this. You need money! Yes, if you actually want to save money on your mortgage without refinancing, you’ll need to make larger payments.

So for those looking to refinance to free up some cash, this method isn’t for you.

But for those who have extra cash lying around, you can get the same interest savings associated with a refinance by paying extra each month or in one lump sum.

Just keep in mind that the extra payments won’t lower future monthly payments. It’ll just reduce your term and total interest expense.

And who knows – if you pay down your mortgage more quickly now, you might be able to refinance in the future more easily because you’ll have a lower loan-to-value ratio.

source:  thetruthaboutmortgage.com

How to Recognize a Bad Mortgage Refinance Loan

As mortgage rates drop, you might anticipate refinancing your mortgage and getting a lower rate and payment. Your current home loan lender may encourage refinancing, and you might receive unsolicited offers from other banks in the area.

With so many financial institutions offering refinancing, and given how it’s a common mortgage practice, it’s easy to assume that any loan is a good one. Fortunately, not all re-financing offers are favorable, and if you’re not careful, you might refinance into a loan with undesirable terms. Here’s a look at three signs of a bad mortgage refinance.

1. Going from a fixed-rate to an adjustable-rate  

If you tell a mortgage lender you want the lowest interest rate and monthly payment possible, the lender might suggest refinancing into an adjustable-rate mortgage.

These mortgages typically offer lower rates than fixed-rate mortgages during the initial years, which can dramatically reduce your home loan payment. This is a godsend if you’re experiencing payment problems. The problem, however, is that these low rates aren’t permanent. Sure, you might have an attractive fixed rate for the next two or three years, but your rate will adjust every year thereafter. And with each rate adjustment, the interest rate can increase or decrease. If the rate increases, so does your home loan payment.

2. Lender encourages borrowing too much

When refinancing a mortgage loan, there’s the option of cashing out your equity. You can use the money for debt consolidation, home improvements or build your rainy day fund.

There’s nothing wrong with a cash-out refinance. If you have plenty of equity, it’s an affordable way to put quick cash in your pocket. The problem is that some people cash out too much of their equity.

A cash-out refinance increases how much you owe, so instead of dropping your mortgage payment, it might increase. And unfortunately, some lenders encourage borrowers to cash out as much of their equity as possible. A loan officer might excite a borrower by explaining the many uses for cash, and unfortunately, some people can’t see past dollar signs. As a rule of thumb, only consider a cash-out refinance if you can comfortably afford a higher monthly payment, or else you’ll risk losing the home.

3. Overly expensive closing costs

Closing costs vary, and you can expect to pay between two percent and five percent of the mortgage balance. If you’re refinancing for the first time, you may assume closing costs are the same no matter where you go. However, different banks charge different fees for common services, such as the loan origination, the appraisal, the title search, etc. And some lenders bet on the fact that you’re not going to do your homework and compare costs.

Even if you have a long-term relationship with your current bank and you’re using this financial institution for your refinance, make sure you get at least two or three quotes from other lenders. Since closing costs are paid out-of-pocket or wrapped into the mortgage loan, comparison shopping is the only way to protect against getting ripped off.

Bottom Line

Refinancing a mortgage loan can be the answer if you need a lower house payment. However, if you take a chance with an adjustable rate mortgage, borrow more than you can afford or get stuck with high fees, refinancing might not be as financially beneficial as you think.

source: totalmortgage.com

3 Refinance Options You Should Always Avoid

Mortgage refinancing can be the logical choice for many homeowners. Whether it’s to reduce the interest rate, lower monthly payments or for any other reason, it can be a smart move. However, it’s important to be aware of some common refinancing schemes that can get you into trouble. They are almost always bad deals and should be avoided.

1) Refinance for Free
When refinancing, you will typically end up paying between 2 to 3 percent of the value of your home in fees. These covers things like the application fee, appraisal, title search and legal fees. This is the norm, so being offered a deal to refinance for free should be a red flag that something isn’t right. One trick that lenders will pull is offering “no cost” refinancing where the costs are transferred into something else like a higher interest rate.

Technically speaking, this would be no cost refinancing. But in reality, you end up getting hit with additional expenses later on. The bottom line is that refinancing comes with inherent costs. There’s really no way around it, so it’s best to stay away from lenders with unrealistic promises.

 2) No Closing Costs
The thought of not having to pay anything to close a deal can seem enticing, and unfortunately, many homeowners fall into this trap. With this tactic, lenders often lure unsuspecting homeowners into a bogus deal because they don’t understand the long-term implications. Like refinancing for free, the closing costs usually get converted into a higher interest rate. Although you pay less upfront, your monthly payments will be higher, and you inevitably end up paying significantly more over time.

According to RefiAdvisor, “the only time these loans are a good deal is if the interest rate increase is very slight, say .125 percent. However, there are not very many lenders willing to offer no closing costs loans at this interest rate. In almost every case you are better off paying the closing costs yourself in exchange for a better interest rate.”

3) Lower Interest Rate Promises

While you obviously want to find a low interest rate when refinancing, you should be wary of deals that look to good to be true. One trick that’s used by con artists is offering “special programs” or leaseback schemes with below average interest rates. Because there are government programs that help needy homeowners refinance for affordable rates, some scammers will pose as representatives of one of those programs and take advantage of people.

With leaseback schemes, a scammer may pretend to be a real estate investor who wants you to sign over the title of your home so a borrower with better credit can get a new loan at a reduced rate and then sell your home back to you. However, it’s unlikely that you’ll get your home back, and it can cause a host of problems. That’s why you always should be cautious when promised a ridiculously low interest rate.

To ensure the best deal, you should look around, compare your options and negotiate. It’s also wise to stick with a national lender or national bank to reduce your odds of getting scammed. If you have any questions or concerns about a lender, you should perform some research, read comments and see if they have accreditation with the Better Business Bureau.

source: totalmortgage.com

Median Age of Refinanced Home Loans Oldest Since 1985

After a few great years, refinance activity has taken a bit of a dive.

Ironically, the recent decline is directly attributable to the refinance boom lenders experienced just months before.

One of the major problems with the current situation is that 30-year fixed mortgage rates have remained below 5% for much of the past four years.

And they increased about a percentage point from their lowest levels last seen in late 2012.

[See the latest mortgage rates from dozens of lenders, updated daily.]

 

In other words, pretty much everyone who was able to refinance already did. And there hasn’t been much incentive to refinance again, seeing that rates have just increased over the past year or so.

Nowadays Most Refinances Involve Much Older Loans

 

During the fourth quarter, the median age of the original loan before refinance was a whopping seven years, the oldest in Freddie Mac’s history, which dates back to 1985.

Just to give you an idea of what the median age of such loans looked like in the recent past, we’ll look at the Los Angeles metro area.

Back in 2003 and 2004, the median age of a loan refinanced there was just 1.7 years. These were the days of the serial refinance, when borrowers used their homes as ATM machines.

Many homeowners had contacts at major lenders like Countrywide, and would often be advised to refinance over and over again, often pulling out wads of cash along the way.

This is exactly how we got into trouble to begin with; most of these loans were ARMs, in many cases option ARMs. They were held just long enough to convince the appraiser to tack on another 10-20% in home value.

Before long, these homeowners ran out of options and were holding the proverbial hot potato, otherwise known as an underwater mortgage and an exploding ARM.

Fast forward to 2013, and the median age of a refinanced loan in Los Angeles stood at 5.3 years.

I can’t see it go anywhere but up as time goes on, especially seeing how mortgage rates drifted so very low thanks to the Fed’s successful, but problematic QE3.

It certainly doesn’t set the stage for a subsequent refinance boom anytime soon, which could eventually translate to questionable lending in the near future.

Things that come to mind are the refinancing of previously modified loans, or lowering standards on new purchase loans to drum up business.

Of course, there will still be opportunities for lenders with cash-out refinancing eventually becoming popular again as home prices rise. And there’s always the opportunity to refinance a loan with mortgage insurance.

Still, it could be tough going for a while in the mortgage industry.


Homeowners Are Still Saving a Lot of Money by Refinancing



While my assessment is full of doom and gloom, there are still plenty of homeowners saving a ton of money by refinancing.

During the fourth quarter, the average interest rate reduction was a healthy 1.5%, or a savings of roughly 25%. On a $200,000 loan, that’s an annual savings of about $3,000.

And homeowners who refinanced via HARP saved even more money, with the average interest rate reduction 1.7%. That translates to about $3,300 in annual savings, or $275 a month.

Freddie noted that homeowners who refinanced last year would save approximately $21 billion in interest over the next year.

Borrowers continued to shorten their loan terms, with 39% doing so during the fourth quarter, up two percent from the third quarter and the highest level since 1992. Only five percent chose to increase their loan term.

More than 95% of borrowers chose a fixed-rate loan, with the 30-year fixed far and away the most popular.

Freddie Mac projects the refinance share of mortgage originations to be just 38% in 2014.

source:  thetruthaboutmortgage.com

How to Refinance Your Mortgage

When you refinance a loan you replace it with a new loan that, hopefully, has better terms and a lower interest rate. Savings could be substantial, depending on the size of the loan and the interest rate change. Although interest rates change constantly, they are now near historic lows, which has prompted many borrowers to refinance.

Online calculators, such as one available on Bankrate.com, can help you calculate how much you can save with a new loan. For a rough guideline, every percentage point reduced equals $1,000 saved for every $100,000 borrowed per year. For example, refinancing a $100,000 loan from a 6% to 4% interest rate would save you $2,000 a year.

All things being equal, the shorter the loan term, the lower the interest rate. Shorter terms also help you pay off the debt faster. That's why many homeowners refinance their 30-year home loans into 20-year, 15-year, or even 10-year mortgages. (See also: 6 Great Reasons for Paying Off the Mortgage on Your Home)

The disadvantage is that shorter terms create higher monthly payments because the payments are squeezed into a shorter timeframe.

All right. Let's take a look the variety of refinancing plans available.

Different Types of Refinancing

 

While many borrowers want the lowest interest rate and hope to pay off debt as quickly as possible, the best loan terms for a particular homeowner depends on their particular situation.


Term

Some borrowers refinance into a longer term, such as a 40-year term, to get the lowest monthly payment possible. Others get a cash-out refinance, or get a new loan that's larger than the current one, to pay for large expenses like a home renovation or new car.


Fees

Fees are probably the biggest downside to refinancing. Mortgages often require the payment of "points" at closing — one point equals 1% of the loan amount. Some points are simply a lender's fee, while bona fide "discount points" lower your interest rate. When seeking a lender, ask if points lower the interest rate.

Other costs to expect include an application fee, loan underwriting fee, an appraisal, title policy, a recording fee, and fee for an attorney or closing agent.

Some lenders offer "no cost closings" or let borrowers wrap their loan costs into the total loan amount — a solution if you don't have enough cash on hand but not the best option if you're trying to pay off the loan sooner.


Lenders

Commercial banks, which hold savings and checking accounts, typically offer refinance loans. Other options include the company holding your current home loan, mortgage banks, firms specializing in making mortgage loans, and mortgage brokers, who accept applications and arrange loans between borrowers and lenders, and credit unions. Credit unions typically serve limited audiences, such as a company's employees and large civic groups, but some credit unions accept anyone who lives, works or worships in their community.

You can also use online tools such as Bankrate to search for lenders.

Refinancing Tips

Follow these simple tips to get the best possible loan.

Understand Your Current Loan

Find out what type of mortgage you have. If your loan is insured by the Federal Housing Administration or is owned or guaranteed by Fannie Mae or Freddie Mac, you might qualify even if your mortgage balance is larger than your home's value and you have little or no home equity.


Review Your Credit History

Check your credit at myfico.com for mistakes, which are common, before applying for a loan. Don’t apply for new credit card or another loan, don’t max out a credit card, and don’t make more credit inquiries, all of which can hurt your credit.


Shop Around

Shop around for the best rate and lowest fees. Shopping, comparing, and negotiating can save you thousands of dollars over the life of the loan. Beware of companies quoting rates significantly lower than competitors. It could be a bait and switch tactic or entail high closing costs. A lender can quote you any rate over the phone but is not committed to it until you lock-in the rate, which typically entails a fee.


Take Good Notes

Get everything in writing, including the rate lock information, loan program, mortgage rate, closing costs, and points you’ll pay, if any.


Get Organized

Organize your financial paperwork. Collect your bank statements, tax returns, pay stubs, W-2s, and other income documentation.


Scrutinize Closing Costs

Examine the Good Faith Estimate of costs, which lenders must provide by law. Some fees might be negotiable — so negotiate! Since you already have a title policy, you should get a discount on a policy renewal. Compare the GFE against the final HUD-1 paperwork, which lenders also must provide, for big cost discrepancies.


Review the Paperwork

Ask to see loan paperwork before the day of the closing, so you have time to read the documents.


Have Enough Closing Funds
 
In addition to paying lender fees, you might need money to set up new insurance and tax escrows. The mortgage refinance closing can be delayed if you don’t have enough funds on hand.

source: wisebread.com

7 Good Reasons For a Mortgage Refinance

Bankrate recently posted an article stating that there were 7 good reasons to refinance your current mortgage. Of course I agree with some of the reasons, but there are a few that I certainly disagree with and would advise against doing.










Get a Lower Mortgage Rate

This one is kind of a no-brainer I suppose. If you can get a lower rate, go for it! However, the general rule of thumb is to refinance only if the current rate is 2 points lower than the rate you are locked into. This is when you can be certain that the additional costs of the refinance will be offset in your favor with the lower rate, and therefore, lower payment.

Ditch Adjustable-Rate Mortgage For the Fixed-Rate Loan

I like this plan as well. Since the rates are currently at a historic low, adjustable rates just don’t make any sense anymore. Why would you want your rates to go up in the future? Get that fixed rate mortgage!

Pull Cash From Your Equity to Buy a Second Home

I don’t quite understand this one. During a time of economic turmoil, why would someone want to risk their current house in order to buy a vacation home? Steer clear of this tactic. It has bad news written all over it.

Pull Cash Out to Start a Business

Because my background is in Business Finance, I understand the reasoning behind this move, but it still is very risky. You need to be pretty sure about your business idea in order to do this. If you are going this route because the bank wouldn’t give you a loan, chances are, it’s a bad idea and you’re going to lose your money. Do your homework and put together a business plan that is rock solid. Only then will this option make sense.

Pull Cash Out to Pay Off Credit Cards

This also doesn’t sound like a terrible idea. Since credit cards can carry an interest rate of over 20% and the average mortgage rate is 4%, it’s an obvious savings in interest. However, this makes those credit cards very tempting to use again. My advice is that if you use this option, cut up those credit cards and live below your means by using a debit card instead. Otherwise, don’t do it. It’s too much of a temptation.

Combine the First Mortgage with the Home Equity Line of Credit

I don’t mind this idea. It creates a little more clarity in your mortgage rather than referring to two different lines of credit.

Pull Cash Out to Address Family Matters

The money is often used to help a family member out who is in a bind. The common scenario now is with younger individuals facing foreclosure, and their parents are bailing them out by refinancing their own house.
Also, this option is used by those who may have recently gone through a divorce and need to divide the assets. Since it is difficult to divide a house in two, it is often easier to cash out in order to pay half of the value to the other party.

Unfortunately, this becomes the only option for some, given their scenario. You’ve just got to do what you’ve got to do.

source: lifeandmyfinances.com

Refinancing the Mortgage With HARP

A few years back we refinanced our mortgage to get a lower interest rate.  At the time, we were absolutely thrilled to get a 4.875% mortgage.  I never thought I’d see rates that low.  The only drawback was that we’d stretch the loan back out to another 30 year term.  We decided to mitigate that by paying extra all year long.  We did that by signing up for the free biweekly payment program at our credit union and also added another $300 a month on top of that.  That got us back on track to pay our mortgage off much sooner than the 30 year term.

I recently started receiving offers in the mail to refinance our house because our mortgage was backed by Fannie Mae and was eligible to participate in the HARP program (if needed).  As soon as I opened each letter, I put it right in to the shredder though because I don’t trust mailings like that.  It wasn’t until I got a letter from my credit union saying that my loan was backed by Fannie Mae and I might be eligible for a lower interest rate that I really started thinking about it.  When I looked in to the current rates at my credit union, I was disappointed to see that they were significantly higher than other rates I’d seen.  Instead of going through the credit union, I remembered that I’d read about Costco aggressively offering mortgage services through a select group of banks and institutions so I gave them a try.  It turns out that Costco has, once again, squeezed many of the fees out of the process.  In order to work with Costco, banks had to agree to a $600 cap on loan costs for executive members and a $750 cap for regular members.  Normally most banks would charge a 1% loan origination fee so this saved us a nice chunk of money.  Because HARP is involved, I was also happy to hear that I didn’t have to pay for an appraisal.  This saved us another $400.  All in all, it was very cheap to go through the process.  It was also very painless.  All the interaction happened through email and they are going to come to my house to handle the signing of the documents.  The best part about all of this is that we got a 3.625% interest rate on the new mortgage.

While I’ve been really pleased with the whole process, I was kind of shocked at the amount of detail they wanted us to provide.  We both have credit scores over 800, flawless credit, no debt other than the mortgage, and have really good salaries.  Based on the amount of information we had to provide, you’d never believe we were a good credit risk.

In order to process the loan, here’s what we had to provide:

• 3 pay stubs for each of us
• 2010 tax return
• 2011 tax return
• Proof of insurance on primary home
• Proof of insurance on vacation home
• Latest bank statement
• Proof that home equity loan has a zero balance
• Homeowners Association Bill
• W2 for 2010 for each of us
• W2 for 2011 for each of us
• Settlement statement from last refinance a few years ago

Like I said, you’d think we had bad credit or something.  Things have definitely changed since the high flying days of 2008.  If they are doing this much due diligence with us, I’m sure there are a LOT of people that are out of luck when it comes to getting a mortgage.

Anyway, we are glad we’re doing it.  The 3.625% rate is unbelievable.  Between the rate and putting an extra $20,000 in cash to pay down the balance even further, we’re going to see our payment drop by $400 a month.  We’ll actually be paying more than that because we want to pay the house off much earlier than 30 years but it’s nice to know that if we ever lost our jobs or fell on hard times, we’d have a much lower mortgage payment to deal with.

source: everybodylovesyourmoney.com

Mortgage refinances surge to highest level since April 2009

Refi madness is smoking hot.

Reacting to record low mortgage rates, borrowers seeking to lower their monthly payments signed up for lower-cost replacement loans last week in numbers not seen in 3½ years.

A Mortgage Bankers Assn. index of refinance applications jumped 20% last week compared with the week before. Applications to purchase homes were up by 4%, the trade group said in a weekly survey released Wednesday.

Rates were plummeting thanks to a new Federal Reserve program designed to stimulate housing and the economy by purchasing mortgage-backed securities. It was the third round of what’s known as quantitative easing, or QE3 as it’s known to Fed watchers.

Freddie Mac’s widely watched weekly survey pegged the average rate for a 30-year fixed home loan at 3.4% last week. That compared with 3.49% the prior week, 4.01% a year earlier, and a rate of well above 6% for most of 2008. Bankrate.com said Wednesday that the overnight average rate for 30-year loans was 3.39%.

Not since April 2009, as the average 30-year rate crashed the 5% barrier, was demand for refinance loans so high, according to the Mortgage Bankers Assn. The trade group said rates for each of the five types of mortgages that it monitors dropped to record lows.

 “Financial markets continue to adjust to QE3, as the ongoing presence of the Federal Reserve as a significant buyer of mortgage-backed securities applies downward pressure on rates,” MBA economist Mike Fratantoni said in a news release.

The success of an Obama administration effort to encourage refinances was contributing to the surge, according to the mortgage bankers and a separate report Wednesday from Lender Processing Services, a mortgage technology and data provider in Jacksonville, Fla.

Lenders traditionally wouldn’t refinance homes for borrowers whose home loans added up to more than 80% of the value of their homes.

But the latest version of the Home Affordable Refinance Program, or HARP, has spurred a boom in refis of these high loan-to-value mortgages if they are owned or guaranteed by the government-supported mortgage finance companies Freddie Mac or Fannie Mae.

Borrowers with little or no home equity can qualify for the HARP refinances only if they have made every mortgage payment on time for the past six months and have had no more than one late payment in the past year.

source: latimes.com